Pages

Sunday, December 30, 2012

Higher Education ... We the Minions Don't Have Enough Money to Pay for All the Governments' Bureaucratic and Wasteful Spending in the Slow Growth Economy of the Future

OVERVIEW

When economies grow, government spending grows. All boats are lifted, which is a great thing, but that strong economy also proves to be the unwitting genesis of future wasteful bureaucratic OPM spending.

And when government spending grows, it becomes less productive. The law of diminishing returns prevails, and the theory of bureaucratic displacement enters the picture.

Then despite the strong economy, the foundation for future outsized deficits is put in place, and borrowing to keep up spending in excess of tax receipts becomes the norm.

But nobody worries, including We the Minions, because it's just a matter of how much more is spent on the various areas. Divvying up the growing pie, in other words. And the government spending spree continues.

All is well in the land of the big spending aristocratic run country, at least until the period of strong economic growth stops.

Then as the economy becomes stagnant and debt levels continue to climb to until they reach record heights, the reverse becomes true.The economy grinds to a halt, and that's when all economic hell breaks loose. Like today.

We've learned know how to spend wastefully when economic growth has been solid, and we now know how to borrow in excess to keep the good times rolling. But when the tide turns, we have no clue what to do. In other words, pain sharing and accepting that we have to work harder to generate more output or live on less spending isn't something we know how to do. We are addicted to growth and the wasteful and unproductive ways it has facilitated, if not fostered. The aristocratic politicians jave learned to love it, but so have We the Minions.

So we all join hands and fight tooth and nail the need to adust our spending habits. Since living on less doesn't come easy, we prefer to wait for the good times to return so we can keep spending and borrowing.

But the waiting doesn't end and the good times don't return. At least not automatically. In fact, government decisions and efforts designed to "save the middle class" tend to make the return of the good times vastly more difficult and distant.

BUREAUCRACIES AND SHRINKING ECONOMIES DON'T MIX

We've discussed the theory of bureaucratic displacement recently. It's an important concept to understand.

The basic idea is that when a bureaucracy exists, making more money available to the wasteful bureaucrats will result in even more bureaucracy. In other words, the more spent by the bureaucracy, the less bang for each buck spent accrues to the benefit of the minions. Useless work displaces useful work and productivity weakens as a matter of course. It's systemic.

Accordingly, government bureaucrats keep trying to help and government spending keeps growing, thereby making things worse as bureaucracies that grow simultaneously become less efficient and effective. Just more wasted time and money at a time that we can't afford to waste either time or money. OPM repaces MOM.

BUREAUCRATIC GROWTH AND WASTED TIME AND MONEY -- THE UNIVERSITY OF MINNESOTA EXAMPLE

Government, health care and our system of public education are great examples of wasteful growth in bureaucratic spending of both time and money. And when weak economies cause the money to stop flowing into government coffers, these bureaucracies function like a deer in the headlights, not knowing what to do except spend more money.

As the bad times linger, taxpayers grow ever more weary and reluctant to provide more money to finance the governments' wasteful ways. And the lenders grow more weary and cautious as well.

Now let's zero in the University of Minnesota example to illustrate the overall point.

"When Eric Kaler became president of the University of Minnesota last year, he pledged to curb soaring tuition by cutting administrative overhead. But he hit a snag: No one could tell him exactly what it cost to manage the school.

Like many public colleges, the University of Minnesota went on a spending spree over the past decade, paid for by a steady stream of state money and rising tuition. Officials didn't keep close tabs on their payroll as it swelled beyond 19,000 employees, nearly one for every 3½ students. "The more questions I asked, the less happy I was," Dr. Kaler said.

Many of the newly hired, it turns out, were doing little teaching. . . . University of Minnesota salary and employment records from 2001 through last spring shows that the system added more than 1,000 administrators over that period. Their ranks grew 37%, more than twice as fast as the teaching corps and nearly twice as fast as the student body.

Across U.S. higher education, nonclassroom costs have ballooned, administrative payrolls being a prime example. The number of employees hired by colleges and universities to manage or administer people, programs and regulations increased 50% faster than the number of instructors between 2001 and 2011, the U.S. Department of Education says. It's part of the reason that tuition, according to the Bureau of Labor Statistics, has risen even faster than health-care costs. . . .

For students, the effect is striking. In 1975, a University of Minnesota undergraduate could cover tuition by working six hours a week year-round at a minimum-wage job . . . . Today, a student would have to work 32 hours at minimum wage to cover the cost. . . .

Administrative employees make up an increasing share of the university's higher-paid people. The school employs 353 people earning more than $200,000 a year. That is up 57% from the inflation-adjusted pay equivalent in 2001. Among this $200,000-plus group, 81 today have administrative titles, versus 39 in 2001.
Administrators making over $300,000 in inflation-adjusted terms rose to 17 from seven.

Many forces besides administrative overhead add to universities' cost pressures, among them health-care and retirement expenses. And among the administrative spending, some is unavoidable, such as that owing to federal rules requiring greater spending to oversee research grants or accommodations for students with disabilities.

Schools also compete—by necessity, they say—to offer fancier dorms, dining halls, gyms and other amenities, to raise their rankings and attract students. "It's a competitive business, and institutions compete for students the same way Lexus and Mercedes compete for car buyers," says Paul Lingenfelter, executive director of the State Higher Education Executive Officers Association.

To compete, schools have stepped up borrowing for construction. Total debt at public four-year colleges more than tripled between 2002 and 2011, to $88 billion, according to the Department of Education. At the University of Minnesota, the yearly cost of servicing debt more than doubled to $106 million in that time.

For decades, public universities were somewhat insulated from financial rigor by steadily increasing state funding. That has slowed or stopped in many states in tight budgetary times. Minnesota's government last year contributed $570 million to university operations, which was about the same as in the 2003-04 school year despite inflation and roughly 10% increased enrollment.

Higher education now faces pressures similar to those that reshaped other segments, Minnesota's Dr. Kaler says. "You look at American industry in general—the car industry got comfortable until the Japanese showed up, the airline industry was comfortable until it got deregulated," he says. "Now it's higher ed's turn.". . .

Dr. Kaler has a salary of $610,000 and his chief of staff of $195,000. Minnesota's governor makes $120,000. Mr. Kaler, 56, said his pay "is competitive in the marketplace."

Summing UpWhen the good times roll, the money flows. Bad habits proliferate throughout the land.When customers aren't in charge, MOM disappears and OPM takes control.When bureaucracy is present and MOM is absent, "bureaucratic displacement" swings into action in a big way.Government gets bigger, more wasteful, less customer centered, less productive and a vicious circle makes everything worse in the midst of trying to make things better.But the artistocrats don't know or won't admit reality and keep spending and growing governments' piece of a shrinking pie.Finally, the federal government has to cut back its funding to states for funding education due to the financial crisis, states then have to cut back back funding to cities and publicly supported K-12 schools, universities and such, and all the bad habits need to be reversed. Ever try to lose weight, stop smoking or study more? If so, then you know what I mean by bad habits being hard to break.But there's no more money available to waste and no more time to waste either.Still, there's not yet a sense of urgency about spending and productivity in government bureaucracies, including the University of Minnesota.But the sense of urgency will develop real soon, because when the aristocracy runs out of OPM to spend, the bureaucratic aristocrats, as well as all of us minions, find ourselves up a creek without a paddle. And asking taxpayers or foreign lenders to row the boat harder is no real solution. The headwinds are simply too strong.It's time to throw overboard our wasteful ways and eliminate our bad habits.Here's the simple truth taught by the University of Minnesota example. We the taxpayers are out of money to support unproductive government growth that results in wasting more time and money by aristocratic politicians playing the phony Robin Hood game of "saving the middle class."Thanks. Bob.